CIAO DATE: 08/04

Summaries: 'Transparency for Growth in the Americas' Conference

Carter Center
September 2001

Carter Center

 

The first full day of meetings began with two plenary sessions open to a broad audience, and a presentation by President Jamil Mahuad of Ecuador concerning his government's transparency work.

President Carter introduced the plenary sessions, asserting that no country is exempt from corruption. Corruption is a major problem in Nigeria, where it has helped to reduce per capita incomes from about $800 to $300 in recent years, but it affects developed democracies as well. Several European countries have not only legalized bribes to foreign officials, but also made them tax deductible. And the United States needs substantial campaign finance reform. Fortunately, policy remedies exist.

The U.S. Foreign Corrupt Practices Act has proven effective, and countries such as Hong Kong and Costa Rica are sharing their successes in combating corruption. The World Bank, Inter-American Development Bank (IDB) and Transparency International (TI) have developed new tools for measuring and stopping corruption, and can lend their support, President Carter said.

IDB President Enrique Iglesias, TI Latin America President Luis Moreno Ocampo, and Dr. Robert Klitgaard, dean of the RAND Graduate School in Santa Monica, Calif., composed the first plenary panel, focusing their remarks on the causes and consequences of corruption. The second plenary panelists - World Bank representative Dr. Daniel Kaufmann, TI President Peter Eigen, and OECD's Dr. Mark Pieth - imparted strategies for improving transparency. President Mahuad followed to present Ecuador as a case example of how to combat corruption.

Plenary 1: Corruption Causes, Consequences

Dr. Iglesias' perspective
Corruption is "one of the most important issues of modern times that imposes tremendous costs" by misallocating resources needed for growth and preserving paternalistic states with corrupt administrations, said Iglesias. Narco-trafficking also is greatest in societies whose leaders receive bribes from illegal, drug-related enterprises.

Liberalization of the press has produced more reporting of corrupt practices that previously were secret under authoritarianism. Under rule of law, people no longer view corrupt practices as inevitable, though they see a need for better public institutions and civil servants.

Meanwhile, economic liberalization has increased competition and eliminated monopoly pricing and rents, as well as reduced state intervention that created opportunities for government officials to demand bribes. Banking, taxation, and procurement reforms have cut excessive regulations, and the U.S. Agency for International Development (USAID) and others have worked to reform and strengthen weak judiciaries.

Corruption also results from societal excesses like individualism and materialism. Research on the relationship between ethics and individualism would be helpful, Iglesias added.

The IDB also has undertaken a "revolutionary" new corruption policy. The bank now requires that all commissions paid on its projects be declared and its officials have access to documents for inspection. The bank also supports activities against corruption in particular countries and supports dialogues on corruption, such as ratification of the Organization of American States (OAS) Convention, a workshop on money laundering prosecution, and a regional meeting of procurement officials.

Dr. Moreno Ocampo's perspective
Dr. Moreno Ocampo underscored the following positive milemarkers that have occurred since the United Nations' failure to pass an international agreement on illicit payments in the 1970s:

1. The United States passed the Foreign Corrupt Practices Act in 1977.

2. TI was founded in 1993.

3. The Inter-American Convention Against Corruption was approved in 1996.

4. The OECD convention entered into force in 1999.

Although corruption is a global problem, TI's Corruption Perception Index indicates that Latin America is the second-most corrupt region, after the former Soviet republics. Latin America's bureaucracies also are among the worst and are not improving. And the region's high unemployment, 35 percent poverty rate, and growing crime correlate with high corruption levels.

Dr. Moreno Ocampo proposed this antidote to corruption: Information + Leadership + Collective Action. A vital issue for fighting corruption in Latin America is how to build coalitions between the private sector, government, civil society, and multilateral organizations. Informed leaders can stimulate collective action against corruption through integrity agreements among a government, the business community, and civil society.

Dr. Klitgaard's corruption analysis
Dr. Klitgaard investigated how corruption affects systems, drawing a parallel to the AIDS crisis. He suggested public mentality must change to combat both problems, but cultural change comes slowly, and political progress must occur in the interim. As with AIDS, the best strategy to combat it is to raise awareness about the problem, focus on prevention, and find a cure.

His formula of Corruption = Monopoly + Discretion – Accountability means corruption relies on incentive structures that motivate corrupt behavior. Civil service reforms will not pay off until this incentive structure is taken seriously. For example, Hong Kong has scrutinized each step of public enterprise activity for bribery opportunities. Individual acts of corruption are relatively easy to document by tracking money flows, but where corruption is systemic, targeting individuals will have little effect because incentive structures drive corruption.

Dr. Klitgaard recommended using confidential interviews to reveal how incentives are structured, particularly in government processes where corruption is rampant: public procurement, licensing, and public officials' appointments. Interview subjects who are persuaded that researchers are deconstructing systems, rather than pursuing corrupt individuals, are more likely to be forthcoming. Policy-makers then can develop "antibodies" that will alter incentive structures. Although this is not a panacea, it will reduce system vulnerability.

Plenary 2: Transparency Strategies

The World Bank's tactics
At the second plenary, Dr. Kaufmann discussed how the World Bank is eliminating corruption from its projects, integrating anti-corruption efforts into country assistance strategies and lending programs, supporting international efforts to curb corruption, and helping countries that request special assistance, including Bolivia, Nicaragua, Ecuador, and Venezuela.

With more data available about corruption patterns, it appears that corruption varies within countries across time, its effects on investment vary widely, judiciary reform is not always linked to reform of government bureaucracies, and bribery fuels tax evasion and unofficial economies. Regulatory intervention, discretion, and monopolistic power tend to correlate highly with corruption, and some theories suggest they cause it.

But if the data help define the nature of the problem, they also guide us to policy remedies, said Dr. Kaufmann. Financial controls, public oversight, legal-judicial reform, institutional improvements, and economic policy measures all must factor into an effective strategy to fight corruption.

Deciding which policy measures to undertake requires an exact diagnosis of the location and extent of corruption. New diagnostic tools have been specifically designed and tested, but often are based in a broad conceptual framework that goes beyond corruption. They are multidimensional, addressing a mix of corruption problems simultaneously, and multipronged, analyzing data from many sources. Importantly, they are also experiential, analyzing actual experience with corruption, rather than testing perceptions alone.

These diagnostic tools have been applied widely enough that comparisons are becoming available. Data show that successful efforts to reduce corruption will be participatory, involving not only top-level political support, but also steering committees and working groups. With a correct diagnosis and implementation of anti-corruption initiatives, significant improvements can be measured after just five years. This outcome supports Dr. Klitgaard's position of emphasizing immediate policy initiatives, as well as longer term efforts to change how people view corruption.

Eigen's stance on transparency
Reiterating Shimon Peres' statement that government no longer deters corruption, but business is well-equipped to affect change, Eigen emphasized that civil society's role is clear. It must identify and define corruption, build coalitions to foster transparency, create a culture supportive of anti-corruption actions, and develop a cool-headed professionalism in those efforts.

Eigen highlighted several approaches to building transparency. These included supporting the freedom of information movement and efforts to protect journalism, increasing the judiciary's independence, demanding transparency in financial sectors, and forming integrity pacts to assure honest public procurement.

Citing The Wall Street Journal survey that indicated more than 90 percent of Latin Americans believe corruption has worsened, Eigen reiterated Transparency International's (TI) commitment to fighting corruption.

How the OECD handles corruption
The Organisation for Economic Co-operation and Development (OECD) convention will work if its member states' laws and their implementation are evaluated, said Dr. Pieth. Legislation is complex, including such diverse elements as tax deductibility, criminal law, and corporate liability. Peer review, plus interviews with local officials, the private sector, and civil society, will be the basis for analysis.

The OECD is successful because its membership is representative, there is a climate of competition, and implementing the convention requires no unifying rules.

International law is changing its perspective regarding corruption, stressed Dr. Pieth. Traditional instruments like conventions are being enhanced with "soft law," such as peer agreements.

Ecuador's transparency challenges
The plenary morning concluded with President Jamil Mahuad's remarks on Ecuador. He noted that the TI Corruption Perception Index ranks Ecuador among the 10 most corrupt countries in the world. Consequently, he accepted President Carter's help and invited all organizations in Ecuador and some others worldwide to lend assistance.

Ecuador's first challenge was to garner support for the anti-corruption initiative and gather related data. As a result, it asked the World Bank Institute to help conduct a diagnostic survey, which was implemented in the spring of 1999.

Ecuador also is strengthening its community values and has developed a national plan that incorporates civil society and the government. The plan takes an integrated, comprehensive, modular approach that spans from prevention to punishment. Prevention is primarily based on enacting laws and heightening Ecuadorians' sense of ethics and values. President Mahuad emphasized the media and schools' role in educating the masses and the importance of offering timely, relevant, and transparent information.

The Ecuadorian government still suffers weaknesses. However, it is combining specific elements of its national plan with the following measures to address corruption:

1. Privatize the most important sectors of the economy.

2. Simplify and eradicate loopholes in government contracting.

3. Foster transparency in procurement.

4. Engage international cooperation to combat corruption.

Why credible information boosts economies
Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta, spoke to conference participants during lunch about why the free flow of accurate information is essential for healthy economic markets.

Citing the work of George Akerlof, he noted that when sellers have more information about the quality of goods than buyers, good and bad products must sell at the same price, and the market price favors the poor quality goods, or "lemons." This principle also applies to stocks, bonds, commodities, labor, and any production process. The buyer must assume the worst and pay a low price. This drives legitimate sellers out of the market and reduces aggregate demand.

For example, the 1997 Asian financial crisis resulted because the Thai government did not release accurate information about its reserves, said Guynn. Similarly, certain accounting practices obscured the true financial position of savings and loan institutions and consequently created a crisis in the United States in the late 1980s.

Transparency may be inconvenient, expensive, and often personally uncomfortable for policy-makers, but Guynn argued that government intervention to assure transparency is warranted, benefiting private firms and society as a whole. It can improve pricing and asset valuation and help prevent policy mistakes and overreaction when problems occur.

Establishing transparency is part of establishing government credibility. It requires submitting to the accountability that the democratic process provides and the legal recourse offered through an independent judiciary.

Rapporteurs Report: Working Group A

The Political-Business Nexus
Chair: Former Ecuador President Osvaldo Hurtado
Facilitator: Dr. Robert Pastor
Rapporteur: Dr. Jan Barton

Our group discussed three issues: party and campaign finance, conflicts of interest and illicit enrichment, and business codes of conduct. Though we all agreed on the seriousness of these issues and on the general principles expressed below, we adapted the topics to accommodate the differences in each country or region.

Party and campaign financing
Clear and strict laws are necessary to assure people that the political and electoral process remains accountable to them, not to the wealthy, special interest groups, narco-traffickers, or tainted money.

We support timely and reliable reporting and disclosure requirements for income, in-kind donations, and expenditures that parties and candidates receive. However, identifying the sources of smaller amounts of funds is unnecessary.

Our group also agreed that any system of assuring transparency in governance, such as auditing and prosecuting corruption, requires a strong, active, and independent legislature, judiciary, civil society, media, and comptroller generals.

Additionally, we discussed various formulas for assuring that the campaign financing system enhances public participation and party and candidate competition, and reduces the influence of money or other biases. For example:

Some form of public financing could help ensure party compliance with various election regulations, such as reporting requirements and no violence. Some believed public financing could encourage broader contributions and more involvement in elections if individuals could receive a tax deduction for a minimal contribution.

Some participants felt there should be limits on the amount and kind of contributions made to parties and candidates and limits on ways to spend funds. However, other participants had concerns about setting such limitations.

To regulate financing, we discussed:

1. Shortening the campaign period, although parties would still need funds before and after campaigns.

2. Recognizing that most campaign expenditures (perhaps 80 percent to 90 percent) pay for TV and radio advertisements. The state could either purchase that time for parties or candidates or, alternatively, require any company purchasing a TV or radio license to provide this time for candidates and parties.

3. We agreed certain institutions need to be responsible for monitoring the reporting and disclosure requirements. Several participants suggested that the Electoral Tribunals monitor the reporting, and attorneys general or procuradores prosecute law violators.

Conflicts of interest and illicit enrichment
The private interests of individual government decision-makers, private citizens, or special interests that secretly use bribery or assurances of future compensation should not affect government decisions, the group agreed.

Policies must respect that industrialized and developing countries face significantly different problems. For example, the U.S., the United Kingdom, and Canada have complex financial disclosure requirements to prevent conflicts of interest. However, the larger problem for Latin America and the Caribbean is the need to avoid public officials' illicit enrichment.

The group recommended that a special office receive financial disclosure forms (declaration of assets) at the beginning of an official's service to remedy illicit enrichment. The office then could monitor the assets periodically - perhaps every two years - and review the forms when the official's term ends.

While most agreed that financial disclosure is important for the most senior officials and some other representatives, the group disagreed on whether the public could access these forms and which officials must file them. Perhaps international organizations or Transparency International could develop further model statutes.

Business codes of conduct
Although our group endorsed business codes of conduct, we agreed that they should not replace clear national laws prohibiting bribery. Businesses, however, could use those laws as the "floor" on which they insist that their employees comply with higher standards. Civil society should discuss these codes so that corporations are sensitive to people's concerns and people are aware of the corporations' work to be good citizens.

We recommended that the World Bank and the Inter-American Development Bank require corporate codes of conduct to bid on bank-financed projects and countries keep registers of approved contractors based on their codes. We also supported having an integrity pact, signed by CEOs and governments, to assure that all contracts prohibit bribery of any kind.

Rapporteurs Report: Working Group B

Implementing International Accords
Chair: Former Bolivia President Gonzalo S‡nchez de Lozada
Facilitator: Ms. Nancy Boswell
Rapporteur: Ms. Nobina Robinson

Our group discussed the status of the Inter-American Convention Against Corruption of the Organization of American States (OAS), and how to continue encouraging OAS member states to sign, ratify, and implement the Convention.

OECD, OAS Convention differences Discussions began with an overview of the 1996 Convention, which defines corruption more broadly than the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials. There are both prescriptive (mandatory) and suggested elements in the OAS Convention. Currently, only 15 of 34 OAS member states have ratified the Convention. Notably, two major OECD players - the USA and Canada - have not ratified the OAS Convention.

Dr. Mark Pieth, chair of the OECD Working Group on Bribery in International Commercial Transactions, helped the group distinguish the difference between the OECD and OAS conventions. For example, the OAS text contained various concepts and elements not included in the OECD context, including illicit enrichment, mutual legal assistance, and extradition. Dr. Pieth remarked that as a regional document, the OAS text resembles language used in the Council of Europe text and must satisfy a range of competing interests within Latin America and the Caribbean. In contrast to the OECD text, the OAS text does not mention monitoring.

The efficacy of the OAS Convention
After vigorous exchanges regarding whether the OAS Convention is useful since all its member states have not adhered to it, Jorge Garcia of the OAS Office for Legal Information clarified these points:

*The OAS Convention was the first international treaty about corruption. Therefore, it has advantages and disadvantages, such as a wider scope, but no monitoring clause.

*The Convention is and will be difficult to precisely implement because of its wide-ranging implications for changes to domestic legislation (preventive measures, criminal code reform, judicial reform, banking reform, extradition).

*The fight against corruption is a process, and the Convention is only one tool.

*The OAS secretariat is working with IDB financing to assist 12 countries to implement the Convention through training workshops and seminars.

*OAS members states can request monitoring requirements through the annual OAS General Assembly.

No U.S., Canada support
Because neither the U.S. nor Canada has signed the OAS Convention, some participants thought this sends a mixed message to the rest of the hemisphere. Smaller and less developed countries of the region are overburdened with reporting requirements and conditions for donor aid, while the most developed countries of the region have not signed, ratified, and implemented the Convention.

One response to this situation was to urge all other OAS member states to quickly sign and ratify the Convention to pressure the northern hemispheric states to do likewise.

U.S.-based commentators also noted that, unlike with the OECD Convention, the Senate Foreign Relations Committee has not entertained legislation to ratify the OAS Convention, believing it is insufficient without monitoring requirements.

Participants further explored the OECD Convention's monitoring process. They concluded that as a confidence-building measure, a peer review mechanism could serve the OAS Convention better than an evaluation or assessment tool. Peer review, based on experts meeting from each member state, would lessen the overt politicization of the monitoring process and avoid turning monitoring into "certification." This review also would result in more positive, constructive approaches that look at achievable objectives, share best practices, and keep focused on the progressive fight against corruption.

In the same vein, other participants from the developing OAS countries also called for capacity building and technical assistance for member states to help implement OAS Convention requirements. They suggested that the OAS assume this role.

Most agreed that the OAS Convention could lose momentum unless more countries signed, ratified, and implemented its requirements. Participants also generally established that there is more to do to ensure that civil society organizations in each OAS member state are aware of the Convention's existence.

Recommendations
With these discussions in mind, the group urged all OAS member states at the June 1999 meeting of the OAS General Assembly to:

1. Promptly ratify the OAS Convention Against Corruption as per their commitments in the Plan of Action of the Santiago Summit of the Americas.

2. Create a peer review mechanism that will promote consistent and effective implementation of the criminal code changes and preventive measures, and ensure sharing of best practices and model laws.

3. Request that a provision by the IDB and the World Bank cover all necessary technical assistance for capacity building to enable and support full implementation of the Inter-American Convention.

Rapporteurs Report: Working Group C

Civil Society and Access to Information
Chair: Former Costa Rica President Rodrigo Carazo
Facilitator: Dr. Luis Moreno Ocampo
Rapporteur: Dr. Henry F. Carey

Working Group C discussed the obstacles that nongovernmental organizations (NGOs) face when trying to obtain useful information to combat corruption. Much analysis focused on state data, rather than how to structure NGOs and the media to obtain it. Following the dictum that "form follows function," the discussants felt that NGOs will self-organize if the right information becomes available.

Differences exist about solutions
There was little disagreement about: the absence of panaceas; the long amount of time required to reduce corruption; the incentives for corruption in poor and weak societies, with low salaries for public officials and cultural expectations of corruption; and the value of useful information. Latin American countries have reasonable laws on paper; the problem is with implementing them and NGOs verifying them.

While no one doubted the value of a trial-and-error approach, significant differences emerged about: the applicability of common solutions in the three main regions of Latin America; whether civil society should treat corruption as a systemic or moral problem; and whether solutions should focus on the short or long term.

Consensus on the nature of the problem

Our group, however, did agree on the following:

1. Weak societies have difficulty monitoring and keeping vigilant over comparatively strong states. Civil society is unable to pressure weak or corrupt police and judiciaries that lack independence and incentives to pursue government corruption. Some countries have no NGOs monitoring corruption, and those that do, often do not know what information to acquire and scrutinize. The group clearly accepted the need to encourage political participation and increase social control, following the analogy of human rights monitoring by NGOs and newspapers.

2. Public opinion is resigned to corruption. Elections do not raise the issue, and candidates make no promises to reduce it. There must be a public discourse on attacking, rather than accepting, corruption.

3. NGOs, even where they are robust, have insufficient access to information. They need, for example, standard information on procurement prices.

4. There is a tendency to have "the fox watch over the chicken coop." Regulation of corruption should not be left to banks or corrupt prosecutors. Civil society should fight for independent comptrollers who have unquestioned integrity. This office should take complaints of corruption, as should specialized NGOs focusing on corruption. Currently when there is pressure, it is for individuals to step down, not for change in the system, making accountability difficult.